RebelCapitalist: Financial Information for the Rest of Us | Next up for Financial Regulatory Reform: Conference Committee

Next up for Financial Regulatory Reform: Conference Committee

May 21, 2010 | By: Mr_Blue | Tags: financial regulatory reform, finreg, financial regulation

Remember way back when in 2009 when the House of Representatives passed its version of Financial Regulatory Reform (Finreg). Last night, Senate finally passed its version of Finreg. Now, the House and Senate will send members to a “conference committee” were they will try to hash out the differences between the two bills. There are still chances that the Finreg will be weakened some more.

Both House and Senate bills are a victory for moderation but the magnitude of the crisis and level of defects in the financial system required something stronger than moderation. Both bills failed to break up “Too big to Fail” financial conglomerates. In regards to consumer protections, House bill creates a Consumer Financial Protection Agency but excludes a majority of financial institutions from regulations and the Senate bill creates a “Board” that is housed in the Federal Reserve Bank and is not all independent from the Fed. The Senate bill has a “Volcker Rule” that restricts banks, hedge funds and private equity funds from making “proprietary” investments that do not benefit clients. But get this: in true Washington fashion the rule wouldn’t be implemented for 2 years while a study is performed on the impact of rule (translation: the rule won’t be implemented). The House bill doesn’t have such a rule only because it was proposed after its bill had been passed.

Here is a good graphical summary of the two bills: Link. David Dayen, who has done a great job of reporting on Finreg, summed it up this way:

The House and Senate bills are broadly similar in the abstract and quite different in the specific. The best of the House and the best of the Senate bills would still not produce an earth-shattering, world-historical piece of legislation, but it would lay an OK down payment on a safer, saner financial system. It would not break up the banks or truly end the casino on Wall Street to the extent that it could have.

Here is Dayen’s entire article - it’s a good one: Link

I am not convinced that this doesn’t prevent the next financial crisis in part because it gives too much discretion to the regulators who botched their job in the beginning of our current crisis. We needed hard rules written in laws. If we get another president like George Bush and a Fed chairman like Alan Greenspan who hate regulations and believe Wall Street should operate freely and to their devices we will be experiencing another crisis. We are truly lowering the standard on what we call “reform”.

Good luck.